Wednesday, November 23, 2016

How much credit really? Calculation of a loan?

It is often said that you should never take a loan, because it is expensive.It is always better to pay cash, it’s cheaper. It’s very true, to some extent, because it’s not that simple. The true price of credit is not necessarily thebelief, and it may be advantageous to a credit! Credit can save youmoney, or, failing that, in quality of life.

To understand the price of credit, you must always take into accountinflation. explanations ;

Calculating cost credit

The APR

Cost of the mortgage

Calculation of the credit period

Should we buy on credit?

Calculating the cost of credit?
We must understand one thing, the concept of inflation. Everyone knowsthat the value of things increases with time. The increase in prices is called inflation. Let’s see how inflation is related to the price of credit.
Let’s say I buy a sofa on credit that costs 1000 euros. I am willing to savecash to buy it, but I’m not going to sit down on the floor for a year while waiting for the money, though? And that tells me it will cost more than1000 euros a year? With inflation, it may cost more!
Since no crystal ball, we will expect a 5% inflation, to make it simple. Soin a year, that sofa I could finally buy will cost 1050 euros. 50 euros more than today.

There is another factor to consider: if you save to buy your sofa, it means that maybe you will put this money in a savings account, waiting to have the money, is not it? And of course, it also generates savings account interest, in your favor this time. We can say that you euros achieved in 1000 after a year you would still have been able to generate 10 euros of interest. By buying right away, you will not receive the 10 euros of interest, so it’s less money for you.
Conclusion: by buying a year, you pay no credit, and you earn interest on the amount saved: it will cost 1050 euros to the sofa in a year, so add 10 euros in lost revenue, not the sofa You would have cost in the end that from 1050 to 1010 euros 1040 euros.
But if I had taken a loan with interest of 6%? In the end, I paid 1060 euros after a year. The credit cost me 60 euros. But if you look at its current price of 1050 euros, the true price of credit is 60 – 50 euros 10 euros, to which we add the 10 euros we would have had in savings, 20 euros in total.
And yes, the sofa will cost me only 20 euros more, but I can use it for a year! The failure to use the couch for a year also has a cost: the quality of life, comfort, things incalculable. All for 20 euros. So of course we must do a bit of futurology: what is the price that you want to buy today in the future?What is the APR rate Annualized Global Workforce?
The APR is the real cost of credit. This is the value you need to look to compare different credit offers that come your way. This is the European Union which sets the method of calculation, so it’s a safe bet for the consumer credit applicant. It is calculated by including all expenses related to credit: the interests of course, but also the fees or insurance may be required depending on the type of credit. The lender is obligated by law to state the APR, it is often written in very small in the imprint at the bottom of ads for credit. This is the main protection of the credit applicant, which allows for a single digit and safer. Previously, banks and other credit companies could mask the true cost by increasing the cost of insurance or fees, which gave the impression to get a good rate.Difficult then to know how much is really the credit, if you’re not very good at math!Calculating the cost of mortgage
Before buying an apartment or a house, there arises, of course, always the question of financing and mortgages. We need to think not at the price of what one wants to buy, but rather how can we repay the bank each month. The rule is simple: one third of our revenues can be spent on all outstanding loans, the debt ratio. It is this value that everything else follows. If you want to buy more, you will have to repay over time, but always the same amount of money each month.
The cost of credit is of course the total interest paid to the lender, the bank. Over the repayment period is longer, the mortgage will be costly. But again, we must take into account other costs, such as not living in an apartment big enough. This is not a monetary cost, but it is a psychological and social costs, it must of course be overlooked.Cost of bridge loan
In these calculations the cost of a mortgage, plus interest, must also think about the potential cost of a bridge loan. This loan is that the bank gives you for buying your apartment, pending the sale of your property today. It only applies to people who already own, and who must sell to move.More information is available on our full article on the bridge loan.Calculation of the credit period
The credit period is calculated from what we can repay each month. If we want to repay a minimum of interest, it is better to pay off as much as possible and as quickly as possible. If one wants to pay back as little as possible each month, it is better extend the possible length of the price, but interest will be refunded accumulated quite high. Just do a simulation on any site of an organization of credit for realizing it: the longer the length, the more it pays interest. For my part, I prefer to take just one credit short! The mortgage answers to these rules, of course, it is best to ensure that the credit be as short as possible, even to move again if necessary.
The rule of thumb is to never take a credit that may be a risk to the person. It should be safe as long as possible, to be able to repay, no matter what. A very long to repay credit increases the risk, we do not know what could happen in our lives. Credit shorter and less risky, even if the monthly payment per month is more expensive: we can always extend a posteriori the repayment period, which is not the case for which credit had already spread to maximum repayment period …

Should we buy on credit or not?
So there are things it is better to buy on credit if you need it, others do not. Anything that depreciates rapidly because of technological change and that can wait, it is better to pay cash, with hard cash. For example a computer, a mobile or even a car. What you buy in a year will probably bebetter and cheaper, so why buy the latest fashionable mobile on credit?If you already have a car, same old, or a mobile phone, wait until you have the money to pay cash !

By cons, things you buy and do not depreciate much over time, such as furniture or real estate, there is no real hesitation, the credit is a good option. You may not better couch in a year or a better house, for against itmay very likely increase in price by then … This broadly course. We know that this time, housing prices are in turmoil. If it is, the apartments will be cheaper in a year, which is very likely! But if they increase by 10% and your interest is 6%, you earn money, because your home will be worthmore than the interest you pay. Many people got rich like that with the sharp increase in the prices of apartments in Paris in recent years, which ends today. Buying a house is a sensitive subject that would be the subject of another article further.
To find out if it is interesting for you to take credit or not a property that is not strictly necessary, remind you of the following:
always compare with the inflation forecast, and the evolution of prices on what you want to buy more precisely.look at the APR of the credit for the property, the total cost of credit.Calculate the money you would have earned in interest if you had savedto buy the propertyWith these tips, I hope you see more clearly the true cost of credit, and you can make the right choices, knowing;)